Thursday, June 27, 2013

Environmentalism good for economy right now

I'm glad to see that Obama made his big speech
and that he is now going to take executive action on climate change. I
do, however, wonder why it took so long. The standard answer is that the
president can only do so many things at once. While that is certainly
true of me, I don't think it applies to him. He has an enormous staff.
He could hire more people if he needed. Why didn't he, on day one, tell
some people, "Put together a report on what we can do on climate
change." That would have taken 4 seconds. Or six if he had added, "Make
it so." But it's all good and I am eager to see what actually gets done.
A big part of it will depend upon the Senate getting past the
Republican filibuster machine.

As I've been arguing for the last four years, now is the time to clean
up the environment. Conservatives (and sadly, many liberals) claim that
we can't do that because it will hurt the economy. That seems like a
logical complaint. But the situation is exactly the opposite. Right now,
we have a huge amount of unused capacity. There are lots of people
sitting around because they can't find jobs. Corporations are sitting on
piles of money they can't find uses for. Now is the time to require
companies to become energy efficient. If we wait until the economy is
booming, then such regulations really will hurt the economy.

But you see, when conservatives claim that environmental regulations
will hurt the economy, what they mean is that it will hurt corporate
profits. And that's true. But keeping corporate profits high is not the
business of the government. That's especially true when unemployment is
high. Pollution is what economists call an externality. All of us pay
part of the production costs of a polluting company through reduced
quality of life (and often also quantity of life).

All economists agree that externalities are bad. They distort markets.
Let me give you an example. Suppose you are making a dress at home.
After you are done, there is a lot of trash: paper, thread, cloth. If
you clean this up it will cost you time, thus increasing the cost of the
dress. Or you could just throw it all on the floor. That wouldn't cost
you any time, but it would make your house messy, which would harm
everyone in the house. By "polluting" the house with your trash, you've
just made your housemates pay for part of the cost of your dress, even
though they get none of the benefits.

We have lots of externalities in our economy and we should eliminate
them as much as we can. So forcing companies to use less and cleaner
energy is not depriving the company of freedom. Their actions are
depriving all of us of freedom. As the companies get greener, they are
taking responsibility for their actual costs of production. And now is
the time for them to make the necessary changes. Not only can they
afford it, it will act as a stimulus for the economy, putting unused
capacity to work.

Environmental regulation during bad economic times is a win-win situation.

Update 1

Matt Yglesias reports on some of the details of regulatory stimulus. It's good, although what he says about power plants is obviously the way that it would work.